Even Without AT&T-Mobile, We Still Have No Competition

With AT&T’s (T) proposed deal to purchase T-Mobile now effectively dead, consumers have won, right? T-Mobile customers who enjoy lower rates have no cause to worry a new owner will raise their monthly bills. AT&T still has plenty of spectrum to roll out its LTE network, so most of the country will have speedy mobile broadband access. And existing T-Mobile subscribers won’t have to buy new phones that work on AT&T’s network.

We still have a pro-carrier situation

However, consumers are no better off than before. I realize that’s a bit of an obvious statement, but the end of the AT&T-Mobile situation looks like a missed opportunity for consumers to benefit from more carrier competition. Let’s face it: We have four major networks in the U.S. providing voice and data—plus a number of smaller, regional carriers—but unlike most other consumers around the world, we can’t move our phones among these networks.

Here’s the problem

Our two GSM networks—AT&T and T-Mobile—use the same network technology and share one of two frequencies for voice, but use completely different frequencies for mobile broadband data services. That’s why the more than 1 million T-Mobile customers who bought iPhones only get slow Internet speeds on their devices: The iPhone’s (AAPL) radio doesn’t support the 1700 MHz frequency used by T-Mobile. Sprint (S) and Verizon (VZ) have built CDMA networks that actually use similar frequencies, but the phones are generally locked down for use on one network or the other.

Essentially we don’t have true competition in the U.S. cellular market. This differs, for example, from Europe where GSM networks are prevalent. Instead of GSM carriers that use different frequencies, they all use the same ones. And there are multiple GSM operators to choose from. This means you can buy a handset from any retail outlet—not just a carrier-affiliated store—and buy a SIM card from the operator who has the best price at the moment.

Roadblocks and solutions

I won’t go as far as to suggest we need government intervention here. I’d rather see carriers simply stand behind their words and allow for true competition. Perhaps that means AT&T and T-Mobile start offering phones that support data frequencies for both high-speed mobile broadband networks. The Galaxy Nexus I just bought from the U.K., for example, does exactly that. I put a T-Mobile SIM in it yesterday to test their network—quite fast at nearly 9.5 Mbps down—and will swap in an AT&T SIM this weekend. I was able to choose my device first and the carrier second in this case.

Unfortunately, even if all of the GSM phones sold in the U.S. did support both major networks, there’s still the problem of the handsets being locked to one network or the other and how that relates to contracts. Because the carriers often subsidize the price of a smartphone to keep the up-front costs low, it’s not in their interest to pay for part of the hardware only to have the buyer move that hardware to a competitor’s network.

Talk about bad timing

At this point, both the networks and the technology cycle are changing too quickly for carrier contracts to be 24 months long. T-Mobile doubled its network speeds in 2010 and then again in 2011, for example. In the past 24 months, smartphone processors have jumped from 1 GHz single-core processors to 1.2 GHz dual-core chips, and we’re on the cusp of seeing quad-core phones. The contract cycle is out of whack with the technology cycle.

I don’t know what the answer is, and to be honest, as I said in the beginning, the situation hasn’t changed for better or for worse, even after the AT&T-Mobile deal falling apart. The problem is, I don’t see this issue going away any time soon. And I don’t believe this market can continue with long-term carrier contracts and phones that can’t be moved from one network to another. My hope is that LTE—which will eventually support voice and data—will help solve the problem, but early indicators signal that even then we won’t see true carrier competition in the U.S.